Category: Mortgages

I have been in business since I graduated from law school in 1993. My husband and I started our own tiny little law firm and we practiced law for eight years before entering the world of real estate development in 2001. Real estate went well for a dozen years, until I made the mistake of partnering with the wrong guy. That partnership has given me tremendous insights into what makes a bad business partner.

Sign # 1: An Unsavory Past

The first sign that you have a bad business partner is if you find out that your partner has an unsavory past. He associates with criminals and shady characters. He evades tax. He prefers the criminal element. He is comfortable with illegality.

My ex-partner was charged with conspiracy to commit murder along with two accomplices in the early 1990’s. He allegedly tried to hire a hit man to kill a former business partner of his with whom he had a falling out. He was arrested with $16,000 in cash in his sock. Soon thereafter, he was also charged with possession of $2 million of stolen property, including Rolex watches straight from the factory, paintings, and jewelry.

Sign # 2: Loves to Litigate

The second sign that you have a bad business partner is if he loves to litigate. It appears that your partner has sued every person with whom he previously went into business. He believes the courts are the place to resolve disputes.

My ex-partner launched ten lawsuits in the decade before I partnered with him. He sued his employees; he sued his lawyers; he sued his former business partners; he sued his competitors; he sued his wife.

Sign # 3: An Unethical Business

The third sign that you have a bad business partner is if he makes his money offering unethical services. His business provides no lasting value to its clients and customers. He makes money off a service that doesn’t work. He takes advantage of desperate people. He permits unethical behaviour in his business. He sells goods and services that are ineffective.

My ex-partner runs a business that does not work in the long run for the vast majority of his customers. The product has been called dangerous by many in his industry. He had to pay approximately $800,000 to a customer who died using his product.

Sign # 4: Denigrates Those Closest to Them

The fourth sign that you have a bad business partner is if he is prepared to denigrate the people that are closest to him. Rather than treasure his spouse, he puts her down and belittles her. Rather than be loyal to his friends, he talks ill of them behind their backs. Rather than give credit to others, he takes all the credit himself. If someone is prepared to do that to the people he “loves and respects”, imagine what he will do to you.

My ex-partner made derogatory statements about his wife even though he was still with her. He was unable to keep friends because he kept betraying them. He would end a long standing friendship over a few dollars. He didn’t value the people closest to him.

Sign # 5: A Vengeful Personality

The fifth sign that you have a bad business partner is if he demonstrates an overriding desire for retribution. Everything is personal. He doesn’t consider the sensible move or the logical solution. He must punish you for what he perceives you have done to him. And he will lie to accomplish his malign objectives.

My ex-partner refused to sell his half of the business back to me despite an offer that he would receive all of his money back plus a significant profit. He also refused to sell the business privately to maximize its value and ensure everyone was paid back and made a handsome profit. He preferred instead to destroy the value of the business to punish me and to ensure he got his revenge. And he lied to accomplish his objectives.

Sign # 6: No Remorse

The sixth sign that you have a bad business partner is if he shows no remorse. He is never wrong. He is prepared to spend whatever it takes for someone to say that he was right. He will manipulate the process through his high priced advisers for whatever the cost so long as it fulfills his malign objectives. He never wants to have to apologize. He never wants to be wrong. He will pay any price to not have to admit he was mistaken.

My ex-partner hired lawyers, receivers, accountants and private detectives all to try to show the world that he was right and I was wrong. He showed no remorse for destroying our business. He was happy to cause personal damage. He seemed happy to destroy the financial lives of anyone who crossed him. He manipulated the facts with the sole objective of trying to show he was right.

Summary:

Due diligence about your proposed business partner is critically important. Ask his peers about him. Check out his past behaviour. Had I known beforehand about my ex-partner’s past and personality traits, I would like to think I would have chosen differently.

If you are thinking of partnering with someone who demonstrates the above characteristics, RUN AWAY…don’t walk, run! No matter how good the partnership sounds now, it will end badly. If you are already in business with one of them, plan your exit now, and quickly. People like I have described make very bad partners. They will destroy you if you partner with them.

Early in life I was told to find what you love to do and the money will follow.

Back then, I loved to play basketball and I was good at it…by London, Ontario standards anyways. Nonetheless, not being male nor being blessed with the ability to dunk, the advice wasn’t readily useful.

Then I went to university and studied law, met and married my husband, and together we opened a law practice. Along the way I met many wonderful clients and made steady money practicing law but I never loved it. I understood by practicing why lawyers have one of the highest rates of alcoholism and are one of the most miserable of all professionals.

Third time lucky…I enrolled in business school and all of a sudden things became a little clearer. With the financial skills I learned there my husband and I were able to determine that fixing problem properties was something I would enjoy and that may make us some real money.

The first problem property we were looking at was owned by a fellow who was having challenges. He had tried to sever the properties but hadn’t completed the severance. He wasn’t paying his mortgagee/partner. His wife and he had separated and she was suing him for child and spousal support and was about to seize his assets. In the face of all that, he was still difficult to deal with as a vendor despite his desperation. He ultimately ended up fleeing to Florida where he had another property and where he would ultimately be charged with arson because he allegedly tried to torch that property for the insurance money.

The properties we were looking at were completely vacant…of humans anyway although there were definitely creatures living inside. They were 13,700 square feet in size over two buildings. They were connected by a Soviet era bunker/tunnel whereby you could move from the front building to the back without going outside or being seen. It rained indoors. The carpets were mouldy; the walls were peeling off; everything was stained and dirty. They were both in a glaring state of neglect and disrepair. Long before, they had been owned by Peter Monk’s company and had bullet proof glass in parts of them.

Our realtor asked us a number of times if we actually wanted to purchase the properties they were such a mess. He wondered why two lawyers who had a law practice making a bit of money, very limited experience in real estate, and seemingly not a lot of resources would want this money pit.

In hindsight, the answer was simple:

LOCATION: The properties were on Hazelton Avenue in the heart of Yorkville in Toronto, a top drawer location – you couldn’t get much better
SCOPE: The properties comprised enough square footage that if successful, they could really create a ton of equity upon completion of renovation;
FINANCING TERMS: The financial terms we negotiated permitted us to purchase with a minimal down payment and put the remaining money we had towards renovation; and
CHALLENGE: The properties presented just enough of a challenge that I thought we could successfully renovate them…assuming we were frugal and got a bit lucky…and refinance them in the planned amount of time.
That was the why. We were also younger and childless and more willing to roll the dice.

Hence we bought the properties for $2.3 million with $200,000 down, a first mortgage from Community Trust of $1.3 million at 8% and a second vendor take back mortgage of $800,000 at 11%. The plan was to renovate as quickly and cost effectively as possible.

We hired a crew of guys and a contractor who became and still is a great friend. We directly supervised them in ripping out everything that was damaged and replacing it with anything we could find on sale.

The front building was to be renovated first. Once partially done, we moved our tiny little law firm into this huge front building. We then created two residential units, one above and one below the law firm, that occupied quickly. The residential tenant downstairs was a smoker – although she claimed to be a non-smoker when we rented to her – and the smoke infiltrated the entire building, making working difficult. We had to kick her out and replace her, which we did in time.

When we tackled the back building, we went high end residential rental with whatever nice products we could find on kijiji, craigslist, the side of the road, carpet ends, end run tiles, paint on sale, kitchen items on sale, and surplus bathroom items. Money was tight and it was a necessity that we were frugal and smart with our money. We had more time than money, so we spent time finding bargain renovation items.

We completed and filled one suite at a time in the back building and we had some very interesting tenants over the years. One was a professional baseball player who changed his home number every three weeks to avoid his wife meeting the parade of call girls and women for hire that frequented the place when she and the kids weren’t there. We had a Buffalo Bill who refused to live in Buffalo and took a limo every day from our place to Buffalo and back. We had a fellow who made a fortune in the high tech industry in Europe, became a pilot, and brought his former stripper partner back to Toronto with him. He had babies with her while continuing to frequent strip clubs here. Those were just three of the very interesting clientele we met and got to know.

Within a year of purchase, we had renovated, severed, and rented out enough of the buildings to justify an increase in value to $3.5 million collectively. When we were done, the Russian Embassy came knocking because they loved the location, the underground tunnel and the bulletproof glass, but no offer was forthcoming. We thus refinanced each of the properties with traditional lenders at much lower rates. Due to the increase in value, we were able to withdraw our initial down payment of $200,000 along with most of our $300,000 in renovation costs, giving us the money to do it again.

That was our start in the world of fixing problem real estate. We bought in June 2001 and finished in June 2002. For that project, it was definitely accurate that when I found what I loved, the money followed.

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The Cash Dam (sometimes referred to as a “cash flow dam”) is a simple but powerful concept, and it’s an especially attractive option for those who are familiar with the Smith Manoeuvre or other tax minimization strategies. Cash Dam can help you with tax optimization if you have a mortgage and own either a small business or a rental property.

What is cash damming?

The Cash Dam allows the owner of a small business or rental property to more quickly pay down their non-deductible mortgage on their home. It’s a variation on the Smith Manoeuvre, but without additional investing. The Cash Dam is essentially an expedient way to change bad debt into good debt.

For someone who’s using the Cash Dam, what it involves is using a line of credit to pay for business expenses. Then, while using the increased business cash flow, you pay down a non-deductible mortgage or loan. This, in turn, produces an increasing tax-deductible business loan, while paying down a non-deductible mortgage or loan. Be advised that the Cash Dam as described above will only work for those who own a non-incorporated personal or partnership-based small business or a rental property.

Example:

If you own a small non-incorporated business that has $2,000 in expenses each month and you also have a readvanceable mortgage, then the $2,000 per month expense would be paid by the home equity line of credit (HELOC). You then use the additional $2,000 you have in your business expense account to make a payment on your non-deductible mortgage. Interest paid on money that’s borrowed for business expenses is tax-deductible; by using the Cash Dam, you’ll be left with a tax-deductible business loan and a non-deductible mortgage that’s been quickly paid down.

One of the keys to the Cash Dam, however, is capitalizing the interest on the business line of credit. That way, you avoid using any of your own cash flow and you keep the business line of credit tax-deductible.

How does the Cash Dam differ from the Smith Manoeuvre?

The Cash Dam relies on using a tax-deductible business loan to allow you to pay down a non-deductible debt, while the Smith Manoeuvre allows you to buy investments. Investing from your credit line is why the Smith Manoeuvre has much higher risk and return than the Cash Dam.

Potential applications

Say that you’re a rental investor, instead of using your own cash flow to pay for rental-related expenses, you can use the Cash Dam and a line of credit. In this instance, using the Cash Dam would help you pay for your personal mortgage and help you satisfy your tax obligations as well.

And if you are a small business owner, the Cash Dam can be extremely advantageous. The strategy gives you a way to quickly pay down your non-deductible mortgage and convert that debt into a tax-deductible business loan.

To no one’s surprise The Bank of Canada has left its key interest rate unchanged at 0.5%. After reading the latest Monetary Report, it doesn’t sound like it will raise its policy rate any time soon. Inflation is flat, as is wage and export growth, and there is still uncertainty in the US and globally.

Despite record low interest rates, some new home buyers are finding it challenging to qualify for a mortgage due to a new round of rule changes announced late last year. These changes have also affected existing mortgage holders who may want to refinance to get a lower rate.

While low interest rates and robust regional housing, markets continue to be the norm, Canadians are still burdened with record-high debt loads. The ratio of debt to disposable income rose to 167.3% by the end of 2016. That means Canadians owe $1.67 for every dollar of disposable income, up from $1.66 the year prior.

If you’re sitting with equity in your home yet can’t seem to manage your debt payments, refinancing could still be an option. With credit card interest rates often pushing the 20% range and unsecured lines of credit in the 7% and higher range paying off high-interest debts can make sense.

Let’s review a refinance. Specifically, you are increasing the amount of your mortgage to pay off debt. Your actual mortgage payment may or may not increase, depending on a number of factors, and you may incur a penalty to break your existing mortgage if you are refinancing midterm, but your overall monthly payments should decrease. You could be paying off the refinanced debt at a much lower interest rate, which could save you thousands of dollars in interest in the long run.

Here are some reasons to consider a refinance:

Decrease your overall monthly debt payments by using your equity to pay off those high-interest credit cards or unsecured loans, which can help you better manage your budget.
You can refinance to purchase another property. Using the existing equity in your home can be a great way to buy a rental property which, if done right, can also make the interest you pay tax deductible.
You could also take out some of the equity for investment purposes.
Or you may want to refinance to renovate.

As you can see there are many factors to consider before deciding to refinance. Each individual’s financial situation is different. Call me and we can discuss the options available to you.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com

Changes in mortgage rules for home buyers and insurers certainly have had an impact on the housing market, and those changes have impacted property appraisals as well. Conventional mortgages – up to 80% of the value of the property – historically, were required to have a full appraisal. Now, in many areas of the country, an appraisal may also be required on insured mortgages — 80 to 95% loan-to value.

The decision to approve a conventional mortgage, after all other lending criteria have been satisfied, is made on a property’s fair market value. This is defined as the market value of an interest in land at the highest price reasonably expected, when sold by a willing seller to a willing buyer, after an adequate amount of time and exposure to the market.

So who determines the value of that property? One could argue that the market itself determines the value, which is true, but from a lender’s perspective that number must come from an independent third-party – the appraiser. An appraiser, who is specifically trained and has sufficient experience, will be asked to offer an impartial, written opinion of the property’s value.

Realtors normally use a comparative market analysis (CMA) to evaluate a property’s value based on local market data. Agents analyze listing and sales data for comparable properties in the area to recommend a price to list or to offer. However a CMA is not an appraisal. Although appraisers use the CMA approach, they use it in combination with other factors to determine the value of a property.

The major difference is that appraisals are done for a specific client — the lender. Because real estate is the major security for mortgages, the market value estimate needs to be as accurate as possible. Appraisers use ‘sold’ properties information only and compare similar property types, in close proximity, that have sold within a relatively short period of time – usually 90 days.

Not all residential properties are subject to a traditional appraisal. If the property is in an established area with similar properties then sometimes the price can be validated electronically. This model of appraising property, called automated valuation model (AVM), has become quite popular in the last 10 years.

However, given the nature of the housing market these days, mortgage lenders have moved away, in many areas, from AVMs for conventional mortgages, and for some high-ratio mortgages as well, and are asking for live, full on-site appraisals.

At the end of the day, an appraisal must reflect a property’s realistic true market value and needs to be backed up with accurate data.

So why does an appraisal come in lower than expected?

With the introduction of bidding wars, where, in some areas, prices may be artificially inflated, appraisers are still tasked with coming up with a property’s fair market value. Rapidly changing markets can be very challenging for an appraiser to properly evaluate a home’s worth.

Appraisers will try to get to the purchase price when evaluating a property. However, sometimes the sale is a few weeks ahead of the market. If prices are increasing, it may not show up in their analysis yet and the appraisal will reflect a lower value.

At the end of the day, the appraisal has to be a realistic evaluation of a property’s true market value and be backed up with data.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com

The debt-to-income ratio has hit the headlines again. This time the ratio rose to 167.3 % in the fourth quarter of 2016 compared to 166.8% in the third quarter. That means for every dollar of disposable income, consumers owe $1.67. Approximately 63% of that debt is in mortgages.

While this increase worries some policy-makers, studies have shown that consumers have been able to pay their debt relatively easily. Low interest rates have allowed consumers to pay down more of their mortgage principal, with payments split almost evenly between interest and principal in the fourth quarter.

But for some, the debt load is unmanageable and they search for solutions. You are no doubt familiar with advertisements from debt settlement services that promise to settle a consumer’s outstanding debt, for a fee. The caveat is buyer beware. If you’re considering this option, make sure to do your research and find a reputable company to work with. Or, I may be able to refer you.

Before you pay upfront fees or service charges, I may be able to help. Much of what debt settlement services offer can overlap with the services of a licensed mortgage broker.

Here’s how it works. Mortgage brokers can arrange debt consolidation on a mortgage renewal or on a refinance. When arranging a consolidation mortgage loan on a refinance or renewal the amount of the mortgage principal may be increased to pay out the total debt amount. This becomes part of the mortgage commitment and a condition of the mortgage loan. On closing, your lawyer will disburse the funds to your creditors and register the new mortgage.

What you need to know
A refinance alters the terms and conditions of your mortgage; specifically you are increasing the amount of your mortgage to pay off debt. Your mortgage payment may or may not increase, depending on a number of factors, and you may incur a penalty to break your existing mortgage if you are refinancing midterm. Depending on your current mortgage you could be paying off the refinanced debt at a much lower interest rate, which could save you thousands of dollars in interest in the long run.

As with all renewals, it’s always a good idea to review your mortgage with a mortgage broker who can shop the rates for you and get you the best deal, tailored to your particular situation. And, if you decide to switch lenders, there are no penalties at renewal time.

One of these options may be the perfect solution if you’re struggling with debt. Call me today for more information.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com

Home is more than a place you live. It’s your family’s haven from the world. But what if something happened to you? What would happen to the home you’ve invested so much in? You wouldn’t think about owning a home without insuring it, yet the odds of your house burning down is more remote compared to the odds of experiencing a life-changing event such as a job lay-off or a disabling accident.

Mortgage payments don’t stop when you’re unable to work so many home owners opt-in for mortgage creditor insurance. This type of mortgage protection insurance preserves ownership of your family’s home by making sure the mortgage keeps getting paid – even during the most difficult times.

Here are four types of mortgage insurance available:

Life Coverage: Mortgage life insurance provides security to both you and your insured co-borrower. If your co-borrower does not qualify for life insurance, you can still apply. Also known as mortgage insurance or creditor insurance, it’s offered by lending institutions and us. It is a life insurance policy that pays the balance of your mortgage to the lending institution if an insured person listed on the mortgage passes away.

Disability Coverage: This insurance is designed to pay a portion or all a homeowner’s mortgage payment if they become disabled — up to 24 months per occurrence. Individuals who opt to take advantage of this type of insurance need to take care to understand the policy completely. Determine the length of time the policy will pay mortgage payments during an episode of short-term or long-term disability. What dollar amount of the mortgage does the policy pay? Is there a waiting period associated with payment from the policy?

Critical Illness Coverage: What if it happens to you? When you survive a critical illness, you may not be able to return to work and your expenses could increase dramatically. If you are diagnosed with one of the 15 covered critical illnesses, based on our service provider’s criteria, which includes certain types of cancer, your mortgage payments are covered for 24 months, whether you return to work or not. Key questions to ask: What critical Illnesses are covered? What happens if I have an acute heart attack, recover in a few weeks or months, and return to work? Does my disability insurance cover me for living benefits? What cancers are covered? Do I need to take a medical examination? Mortgage Critical Illness Insurance is a benefit you enjoy while you are alive. It builds on your Mortgage Life Insurance to complete your protection.

Accidental Job Loss Coverage: If you are injured or are unable to work or become involuntarily unemployed, your monthly mortgage payments will be covered up to six months per occurrence.

If you don’t have any of these coverages now on your mortgage, we may be able to add them on.

Call me for more information.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com

For some, getting a mortgage from a bank has become a bit more challenging – even if your credit score is good If you don’t qualify using the benchmark rate, regardless ofwhat mortgage rate and term you opt for – this has been called the” stresstest” — then you may be out of luck. With the introduction of new mortgagerules last year, the Government tightened mortgage lending guidelines inresponse to concerns that some markets in Canada are overheated and thatCanadian debt levels continue to increase.

The new mortgage rules have also had an impact on those who want to refinance their mortgage loan. And at renewal time, if you want to increase your existing loan, change your amortization or shop for a better rate, the rules may have an impact as well.

Despite the challenges, there are solutions. A bank is not the only option for a mortgage. The new mortgage rules have created an opportunity for a variety of specialized lenders to enter the market who are flexible and open to reviewing a variety of situations and has led to a growing pool of mortgage funds.

In a nutshell – they’ve gone mainstream
These lenders are not limited to private individuals with money to lend, either individually or as part of an investment pool. Mortgage brokers still have access to those funds; however, the market is also seeing an increase in the number of Mortgage Investment Corporations (MICs) as well as smaller lenders with products to fill the gap.

Many alternative lenders put more weight on the equity in a property, rather than on the work you do or on the credit challenges you may have.

Smaller institutional lenders in some regions across Canada, like credit unions, however, may offer specialized lending with affordable interest rates, reasonable lending fees and flexible underwriting.

A few benefits of specialized lending:

Quick closings: The key to a quick close is having your financing set up quickly — specialized lending can make that happen.
Terms of the loan: These loans are for short periods of time, usually no more than two or three years.
Great for investors: Because specialized lenders have flexibility, they will look at those fixer-upper rental properties with a keen eye and may fund both the purchase and the home improvements.
Diverse repayment options: This is especially helpful for entrepreneurs. Payments can be structured more creatively and may include interest-only payments and balloon payments at the end of the term or on closing of a sale.
Construction financing: Bank construction financing can be riddled with red tape. Private lending may get the borrower more money, and quicker access to construction draws, which in the end, could save time and money when building a home.

For more information and to find a lender who will meet your needs, call me today!

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com

This past year we saw many challenges in the housing sector. There were the recent changes to the mortgage rules that included a “stress test” for all insured mortgages. This means that all insured mortgages must be qualified at the benchmark rate, which is currently 4.64%. This may affect home buyers with less than 20% down payment who are looking for a fixed rate mortgage.

We saw housing prices increase in some areas of the country while in other areas we saw a slowdown of housing activity, and yet other parts of the country are still feeling the effects of falling oil prices. We’ve also seen the fixed-rate on mortgages start to climb due to the upward pressure on bond yields and increases to the cost of funds.

The Canadian dollar is trading at approximately 74 cents to the US dollar (at the time of this writing) and there is concern about high consumer debt. The market is still jittery about the policies of the incoming US president. Yet Canadians are resilient. Despite gloomy predictions, despite increasing debt loads, despite all the changes we have endured, we continue to look on the bright side and consumer confidence is high.

While the housing market did slow somewhat in many parts of the country, there are signs of life. While there are still some issues surrounding affordability for first time home buyers, the market appears to be self-correcting, as many economists predicted it would.

The Canadian Real Estate Association’s prediction for 2017 is a mixed bag with sales easing slightly in some provinces and rising in others. The national average home price is expected to decline in 2017, easing affordability for first time home buyers. It seems the market is balancing itself with an increasing supply of listings to meet demand in some markets.

If you’re thinking of buying a new home, let’s do our own stress test. Too often, consumers focus on the total mortgage amount they qualify for instead of looking at their desired lifestyle and retirement goals. If you’re in the process of arranging a new mortgage, renewing a mortgage or refinancing an existing mortgage, then let’s stress test it.

Since we’re starting a new year, it’s also a good time to discuss any financial changes to your household and if and how that will affect your mortgage. Together, we will review your financial situation and tailor a solution that works for you. Call me today.

Wishing you health, happiness and prosperity in 2017.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com